The Dark Side of Copyright Enforcement: Magistrate Judge Recommends that Suit against Copyright Owner and its Counsel Be Allowed to Proceed

Boston seems to be the venue for action at the far extremes in copyright enforcement. On the one hand, as discussed in earlier posts, a local jury found an individual, music downloader Joel Tenenbaum, liable for $675,000 in damages (following a much publicized but unsuccessful defense by a Harvard Law School faculty member), and the First Circuit followed with an owner-friendly opinion affirming the jury’s award. At the other extreme, we now have the case of Shirokov v. Dunlap, Grubb & Weaver PLLC, et al., in which a movie file downloader who received a settlement demand letter has turned the tables and brought a putative class action advancing claims of fraud, misrepresentation, and deceptive business against a copyright owner and its law firm.

Allegedly, a German company (“Achte”), which owns the film Far Cry, teamed up with its US counsel (“DGW”) to “monetize copyright infringement allegations.” The defendants, which also included another German company that tracked IP addresses of downloads, filed motions to dismiss on numerous grounds. The motions were assigned to a U.S. Magistrate Judge Jennifer Boal for a report and recommendation, which just issued on March 1.

The court aptly summarized the alleged scheme:

Shirokov claims that the defendants conspired to attempt to extort money out of individuals who may have infringed upon Achte’s copyright. He alleges that Achte, through DGW, knowingly and intentionally made false representations to the Copyright Office in order to obtain a copyright registration. Then, based on the fraudulently procured copyright registration, DGW filed a [John Doe] copyright infringement claim and obtained a subpoena to obtain Shirokov and other Class members’ identifying information. Using that information, DGW sent [form letters] to Shirokov and other Class members in an effort to get Shirokov and other Class members to pay to settle the claims of the threat of statutory damages to which they knew Achte was not entitled.

The court noted that although Achte and DGW had identified 4,437 infringers through their John Doe action in the District of Columbia — and sent out a raft of aggressive demand letters threatening statutory damages — they ultimately sued only one individual in that action and eight individuals in other courts.

The Magistrate Judge here in Boston found that the allegations concerning this scheme were sufficiently plausible and specific to proceed on several theories: conspiracy, aiding and abetting, fraud, negligent misrepresentation, fraud on the copyright office, and the state statute prohibiting deceptive business practices (M.G.L. c. 93A). She recommended dismissal of several other claims, including civil RICO liability. Along the way, she recommended denial of defendant’s arguments that the case was barred by lack of standing, the Noerr-Pennington doctrine, and the Massachusetts litigation privilege. Finally, she recommended dismissal of the co-defendant, the German tracking company, based on lack of personal jurisdiction.

There are many interesting aspects of this lengthy ruling, but two stand out. First, the attorney defendants argued that many of the counts — including fraud, negligent misrepresentation, and unfair business practices — were invalid because they were counsel acting on behalf of their client, and could not be liable to an adversary to whom they owed no duty. The court rejected these arguments, noting that the complaint alleged that the lawyers were the “designers” of the scheme, and that they could be found to have “crossed from traditional representation into active participation in trade and commerce.”

Second, in the dispute regarding personal jurisdiction over the German tracking company, both parties cited the Zippo “sliding scale” interactivity analysis (applied in the D.Mass. in Sportschannel New England Ltd. Partnership v. Fancaster, Inc., 2010 WL 3895177). The court agreed that this analysis was “useful” and employed it even though the case did not involve a website. The case might point to future expansion of the Zippo/Sportschannel analytical model.

Assuming one or both sides objects to the recommended ruling, Judge George O’Toole will have the last word on the motions to dismiss. However, it is relatively rare for a district court judge to disagree with a magistrate judge’s recommendation, and the odds are that the case will proceed onward toward class certification and discovery.

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